Dynamic Modelling of Energy and Growth in South Asia

Muhammad Arshad Khan, Abdul Qayyum


Energy plays an important role on the demand and the supply
sides of the economy. On the demand side, energy is one of the products
a consumer decides to buy to maximise his utility. On the supply side,
energy is the key factor of production in addition to labour, capital
and other raw materials. Energy is considered to be the key element in
the socio-economic development of a country. It also helps to improve
the living standards of the society through the increase in economic
growth. This implies that there is a causal link running from energy
consumption to economic growth. If causality runs from energy
consumption to GDP then it implies that an economy is energy dependent
and hence energy is a stimulus to economic growth [Jumbe (2004)].
Shortage of energy may negatively affect economic growth and may cause
poor economic performance leading to a reduction of income and
employment. On the other hand, if causality runs from GDP to energy
consumption, this implies that economy is not energy dependent, and
hence energy conservation policies may be implemented without adverse
effects on economic growth and employment [Masih and Masih (1997)]. If
there is no causality between energy consumption and GDP, it implies
that energy conservation policies may be pursued without affecting the
economy [Jumbe (2004)]. Based on these arguments, it is necessary to
analyse the link between energy consumption and economic growth because
it is often argued that the increased availability of energy services
act as key stimulus of the process of economic development.

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DOI: https://doi.org/10.30541/v46i4IIpp.481-498


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